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The song remains essentially the same in the semiannual Barron's-Zack's ranking of brokers' stock-pick lists. Though this year's 8% first-half stock-market return was significantly better than the 5% loss in last year's second half, two regional brokers again took the top honors, shunting aside larger and better-known competitors.

Far from the Wall Street crowd, Los Angeles-based Wedbush Securities accomplished a triple repeat, producing the best focus-list return over the six, 12, and 36 months through June 30. Meanwhile, up the West Coast in Seattle, McAdams Wright Ragen reprised as No. 1 in the 60-month contest and again took second place in the 36-month race.

ONE BROAD UNFAVORABLE CHARACTERISTIC also repeated itself. Average broker underperformance that began in the first half of 2011 has deteriorated, and now over all four periods the average total return of the nine brokers in the survey trails that of the Standard & Poor's 500, with dividends included. (See table below.)

Wedbush and its equities chief, Sheri Kaiserman, hit a homer with Pharmacyclics, developer of a leukemia drug.
Courtesy of Wedbush Securities Inc.

Every six months Barron's and Zacks rank the best stock picks, or focus lists, of America's brokers, some of them storied names, like Morgan Stanley Smith Barney, but others less well-known nationally. (For a detailed description of the methodology see below.)

Over the years the survey results have shown that the average broker's return has tended to exceed the market's during bullish phases, as in 2009 and 2010. However, brokers' stock-selection acumen seems to fade and their mean returns tend to sag just when investors need advice the most -- in bear markets or, as in the past 18 months or so, unsettled ones.

LAST YEAR, THE MARKET FINISHED little changed in volatile trading, and the first half of 2012 was schizophrenic, with a first-quarter return of 12% and a second-quarter loss of 3.3%. The first quarter was characterized by a "risk-on" attitude among investors, who sharply bid up many of the stocks that had done the worst in 2011. In the year's second three months, that reversed, and a more defensive equity posture served investors well.

Wedbush managed to overcome that particular difficulty. Along with McAdams Wright, it shares the relatively unusual distinction of not covering every industry sector, something typical of the big Wall Street brokers, which have more equity research resources. A more narrow universe of stock coverage can help or hurt a broker's return, depending on which sectors are in or out of favor.

In this ranking, the better-performing brokers generally were overweight in health-care shares in the first six months, notes Tracey Ryniec, a Zacks equity strategist. The health-care technology group was the third best-performing S&P group in the first half, up 35%. (Numero uno was home-building, up 56%.) Moreover, Ryniec adds that financial stocks, which used to be found in both winning and losing lists, now have slipped in popularity.

Our big winner, Wedbush's 10-to-20-name Best Ideas list, as it's called, benefited from strong picks in two or three sectors but none better than
Pharmacyclics
(PCYC), up a blistering 268% in the first half. Wedbush's head of equities, Sheri Kaiserman, says the biotech company is developing a promising drug, ibrutinib, for chronic lymphocytic leukemia. There's some debate about when the company might see revenue from the product. But at $52, and down from about $60, the stock remains on the Wedbush list.

Looking at sectors, McAdams in general has favored consumer staples and information technology over the five years. Those two S&P 500 sectors were Nos. 1 and 2, up, respectively, 29% and 19%, over the 60 months ended June 30. As with Wedbush, the lack of financials proved to be addition by subtraction for McAdams.

Strong five-year performances are notable because of the period's length and because this span includes both a terrible bear market, in 2008 and early 2009, and the bull market since.

BESIDES OUR GOLD MEDALISTS, a good performance was also put in by Edward Jones, a consistent proponent of a conservative buy-and-hold strategy that emphasizes large-cap, dividend-paying, high-quality stocks. Whenever the "risk-off" trade made itself felt, such as in 2011's third quarter and this year's second quarter, Edward Jones was a prime beneficiary, helping it finish strongly over 12- and 60-month periods, in particular.

Meanwhile, Charles Schwab's 100-name and sector-neutral list was hurt by poor performances in 2011's third quarter and this year's second quarter, says Greg Forsythe, the firm's director of equity ratings. Schwab's mostly quantitative methodology looks for cheap stocks with improving fundamentals and market momentum. But the past 18 months have been characterized by periods where stocks have moved almost in unison on macro factors, the risk-off trade. When that happens, what Schwab views as value stocks the market often sees as too risky. Forsythe says the popular sectors now, utilities and telecoms, for example, don't offer much growth and thus look expensive.

Among other broad influences an investor should consider when evaluating broker performance is sector weightings. A focus list with a large overweight in financials in the past five years, energy in the past three, and materials in past 12 months was batting with one strike against it because of those sectors' poor performance.

And as Barron's has noted in past contests, and Morgan Keegan showed again, just one or two stocks can have a big impact on the portfolios of brokers with relatively small lists. Most brokers go through hot and cold streaks, so it pays to look for durable, long-term outperformance.

How They've Done

The top finishers made some nifty stock picks and stayed away from sectors that didn't fare well in the periods covered by our contest.

Behind the Lists

Zacks Investment Research compiles the data and then scores the brokers by keeping a running tally of each focus list for various periods over the past five years. In tracking brokers' best ideas, Zacks puts a stock in a theoretical portfolio when the broker adds it to its focus list, and takes it out when the broker removes it. While similar in intent, these lists differ in significant ways. For example, some are updated at regular intervals, but others can be changed whenever it's deemed necessary.

The sizes of most lists are flexible, although in some cases the numbers can be fixed. Most lists have 20 to 50 names, but some, like Charles Schwab's, can run to 100. The smaller the list the more exposed it is to one or two stellar or disastrous picks. With big lists, individual picks matter less but it's tougher to beat the index because each stock is a smaller percentage of the portfolio. Some or our participants focus on large caps and others small and mid cap stocks, which over long periods of time tend to outperform big caps.

Additionally, Chicago-based Zacks ranks the brokers' picks on an equal-weighted basis, while the Standard & Poor's 500 index is weighted according to its components' market capitalization. As a result, brokers' results aren't strictly comparable to the S&P 500's. In order to help readers get a better perspective on relative performance, our tables show the S&P returns on an equal-weighted basis as well.